Despite facing challenges in the Chinese market, A2 Milk managed to achieve a strong result with a 7.7 percent increase in net profit after tax.
On Aug. 19, A2 Milk shares dropped by nearly 19 percent due to a difficult outlook in China. Despite this, the company reported a net profit after tax of NZ$167.6 million (US$101.7 million) in the 2024 financial year, showing a 7.7 percent growth.
A2 Milk acknowledged a 5.6 percent decrease in newborn numbers in China for the 2023 financial year, with a projected long-term decline. Despite these challenges, the company reported strong growth, including a 6.9 percent increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) to $234.3 million.
Earnings per share rose by 9.2 percent to 23.2 cents, while revenue surged by 5.2 percent to $1.675.5 billion in the 2024 financial year. A2 Milk also reported a net cash balance of $968.9 million, marking a 28 percent rise from the 2023 financial year.
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On the Australian Stock Exchange, A2 Milk shares experienced an 18.69 percent decline on Aug. 19. In contrast, the benchmark ASX 200 index, comprising the top 200 companies in Australia, rose by 0.12 percent.
While A2 Milk shares fell, Synlait Milk shares increased by 8.96 percent, and Bubs Australia shares saw a rise of 4 percent.
CEO David Bortolussi commented, “We continued to execute well against our growth strategy, primarily focused on the China market, delivering positive FY24 results with strong revenue and EBITDA growth.”
Challenges in the Chinese Market
Examining the Chinese market, A2 Milk observed an 8.6 percent decrease in the infant milk formula market volume and a 10.7 percent decrease in value in the 2024 financial year.
A2 Milk attributed this market decline to a combination of factors, including fewer newborns, heightened competitive pressure, and challenging macroeconomic conditions in China.
The company noted a 12.5 percent drop in China label infant milk formula market value, with declines in both mother and baby stores (down 16.1 percent) and the domestic online channel (down 12.2 percent).
“Significant pricing pressure was experienced across China label channels due to volume pressure from declining newborn numbers, the transition to new GB registered products, and challenging macroeconomic conditions,” added A2 Milk.
Australia and New Zealand Market
A2 Milk reported a 3.3 percent increase in liquid milk sales to $190.2 million in Australia, driven by the success of lactose-free A2 Milk. However, this growth was offset slightly by lower sales in the core milk range.
The company acknowledged challenges in the Australian and New Zealand market, with revenue decreasing by 14.6 percent to $317.3 million and EBITDA falling by 32.6 percent to $63 million.
This decline was primarily due to lower infant milk formula sales in the Daigou channel following a shift in distribution strategy. The Daigou channel experienced a 14.3 percent decrease in market value in the 2024 financial year.
The Daigou channel involves online traders who purchase foreign products overseas and resell them in China at a higher price.
United States
In the United States, A2 Milk reported an 8.2 percent increase in revenue to $1,113 million. The company also saw an improvement in EBITDA losses, with a decrease from $23.3 million in the 2023 financial year to $15.5 million.
This revenue growth was attributed to reduced promotional activities and the success of the A2 Milk Grassfed product. Additionally, A2 Milk began distributing A2 Platinum infant milk formula in the 2024 financial year following short-term approval from the U.S. Food and Drug Administration (FDA) with selected retailers.
A2 Milk emphasized the importance of accelerating profitability in the United States, stating that achieving profitability by FY27 is more likely due to investments in the infant milk formula segment. The company expects the liquid milk business in the USA to achieve breakeven contribution margin by FY26.
Future Outlook
Looking ahead to 2025, A2 Milk highlighted the continued challenges in the Chinese market and anticipated a further decline in the 2025 financial year.
The company expects mid single-digit revenue growth in 2025 compared to 2024, influenced by Infant Milk Formula supply constraints that are projected to be resolved in the first half of 2025.
A2 Milk predicts the earnings margin in 2025 to be similar to that of 2024, with lower performance in the first half and a pickup in the second half of the year.
Risks such as competition in the China infant milk formula market, supply challenges, cross-border trade issues, interest rate fluctuations, farmgate milk pricing, commodity price changes, and foreign exchange rate movements were highlighted by the company.
“These challenges and risks have the potential to significantly impact expected revenue and earnings outcomes,” A2 Milk cautioned.
Please rewrite the following sentence and provide the desired output:
Original sentence: “The quick brown fox jumps over the lazy dog.”
Desired output: “The speedy brown fox leaps over the sluggish dog.”
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